Jeffrey BauerBattling over the size of networks distracts from solving the far more serious problems of cost and quality.

Insurance companies are taking a lot of flak these days for narrowing provider networks.  Consumers get upset when their health plan no longer “prefers” their hospitals and physicians. Disenfranchised providers are taking a variety of political and legal actions to fight against exclusion. Policy wonks debate negative and positive implications of restricted choice, positioning network designation as an Affordable Care Act-related issue for the 2014 mid-term elections.     

A 50-50 Chance

As a health futurist, I’m not sure where this trend is headed. The most likely picture in my crystal ball is one of continued conflict, with roughly equal odds that narrow networks are here to stay and that health plans will reverse course by including more providers in coming years. My expectation is the equivalent of a 50 percent chance of rain, which is completely accurate for a forecast period if half the forecast area gets rain and half does not. (You can find a detailed explanation of this important paradox in my new book, Upgrading Leadership’s Crystal Ball.) Post-reform health care is headed in more than one direction and will end up in many places.  

On the other hand, as a medical economist, I believe that narrow networks can be a move in a good direction. If created for the right motives, they address one of the main reasons—inefficient, wasteful production—that our healthcare system, as evolved over the past 50 years, really is unsustainable. Narrow networks are a big change in the medical marketplace, but big change is needed. To me, the key policy question is how to build narrow networks that do the right thing—always providing healthcare services of expected and acceptable quality as inexpensively as possible.

A Step Forward

Given the lack of consistent evidence that quality and cost are positively correlated, cutting insurance coverage for high-cost providers is a step forward, as long as beneficiaries can receive care that is of at least the same quality from a network’s remaining hospitals and physicians. Patients may be inconvenienced in the process, but I believe most will ultimately accept a narrow network when transparent and understandable data show they are saving money without sacrificing quality.  

The availability of valid (meaningful), reliable (accurate) data on cost and quality thus justifies restricting insurance coverage to smaller provider networks. Overall, I believe that health insurance companies have better data than providers do for purposes of rationalizing access to care. Payers’ data are neither perfect nor perfectly applied, but are good enough (and getting better) to home in on the less expensive care that purchasers and patients—having reached the limits of what they are willing and able to spend on health care—are demanding.  

So what’s the strategic financial challenge? Clearly, it’s using data to eliminate waste through performance improvement—limiting panels to providers that always deliver care of acceptable quality at the lowest possible cost. I do not believe providers or payers can do this on their own (i.e., individually). Rather than fighting each other, they should create multi-stakeholder partnerships to build cost-effective networks, not bigger networks. 

Jeffrey C. Bauer, PhD, is a health futurist, medical economist, and independent speaker and consultant based in Chicago, and a member of HFMA’s First Illinois Chapter. 


Publication Date: Monday, March 31, 2014